FMCG Weekly: Grocery Price Wars & The Historic P&G-Unilever Rivalry

This week, we’re diving deep into the latest turmoil in UK grocery retail, as billions are wiped off the value of leading supermarkets amid growing fears of an Asda-led price war. Plus, we examine the strategic pivots at two global FMCG giants: Procter & Gamble’s dominance over Unilever and Unilever’s own bold bet on social media marketing.

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UK Supermarkets in Turmoil: The Asda Price War

Let’s start with the seismic shock in the UK supermarket sector. Since Friday afternoon, Tesco, Sainsbury’s, and Marks & Spencer have collectively lost £3.5bn in market value. The trigger? Concerns that Asda is ready to sacrifice profits in an aggressive price war to reclaim market share. Tesco’s shares dropped by 10%, Sainsbury’s fell by 8%, and M&S slipped by 7%. This dramatic sell-off followed Asda’s announcement that its profits are likely to decline as it doubles down on price cuts and operational changes.

Retail analysts suggest Tesco and Sainsbury’s will have little choice but to respond with their own price reductions, squeezing their margins. Frederick Wild from Jefferies emphasized that the grocery sector is evolving rapidly, and any retailer caught unprepared will struggle. However, the sustainability of Asda’s aggressive pricing strategy is uncertain. Wild questioned whether Asda can commit to deep price cuts without seeing a substantial rise in customer volumes.

Asda’s newly appointed Chairman, Allan Leighton, is spearheading this turnaround with a “war chest” to tackle the supermarket’s prolonged weak performance. The revival strategy includes reintroducing the ‘Rollback’ promotion, first used in the 1990s. Currently, price cuts averaging 25% have been applied to 4,000 products—around a quarter of Asda’s total range—with plans to expand further. The ultimate goal is to ensure Asda is 5% to 10% cheaper than its competitors by 2026.

However, price wars come with risks. A race to the bottom in pricing can erode profitability across the sector, affecting supplier relationships and long-term financial stability. Clive Black from Shore Capital recognized Asda’s pricing commitment but cautioned that retailers with stronger balance sheets, such as Tesco and Sainsbury’s, might be better positioned to navigate the pricing pressure. He also warned that irrational price-cutting could create a margin squeeze, which might be unsustainable in the long run.

Beyond its price war, Asda is also embarking on a major SKU rationalization, cutting thousands of products. In a bold strategic move, Asda plans to reduce its SKU count from 30,000 to around 24,000 over the next year, aiming for a leaner, more efficient product offering. Chairman Allan Leighton sees this as a necessary step for Asda’s long-term recovery. Despite concerns over the supermarket’s high debt levels—£3.8bn in net debt with annual interest costs of £300m—Leighton remains confident that Asda can generate sufficient investment internally.

P&G vs. Unilever: A Century-Old Rivalry Intensifies

Beyond the UK retail shake-up, the long-standing rivalry between Procter & Gamble and Unilever is heating up. P&G, the powerhouse behind Tide, Pampers, and Old Spice, has pulled ahead by focusing on its biggest brands and improving their efficacy. In contrast, Unilever remains heavily reliant on food products and emerging markets, facing increasing pressure to streamline its portfolio.

P&G’s strategy is simple yet highly effective: prioritize core brands, invest in their superiority, and maintain pricing power. Over the past decade, P&G has doubled its share price, while Unilever’s has risen by only 40%. Analysts argue that Unilever’s mixed portfolio, which still includes food and lower-margin items, makes it more vulnerable to economic fluctuations.

Activist investor Nelson Peltz, who previously pushed P&G to streamline operations, is now pressuring Unilever to follow suit. Unilever’s new CEO, Fernando Fernandez, has acknowledged the need for change, recently announcing a divestment strategy that could offload €1bn worth of underperforming brands. Additionally, Unilever is considering spinning off its ice cream business to focus on high-margin personal care and household products.

One of the most radical shifts under Fernandez’s leadership is Unilever’s pivot to a social-first marketing strategy. Recognizing that Gen Z consumers rely heavily on influencers, Unilever aims to increase social media’s share in its marketing mix from 30% to 50%. Inspired by L’Oréal, which dominates beauty sector marketing, Unilever plans to scale influencer engagement significantly, leveraging AI tools to optimize marketing efficiency. However, questions remain about whether this shift will yield the same returns for Unilever, given its lower gross margins compared to L’Oréal.

Fernandez believes Unilever’s marketing strategy must evolve to capture younger consumers who trust influencers over traditional advertising. The company plans to create an influencer network at scale, aiming for hyper-targeted marketing in key emerging markets. This approach, modeled after L’Oréal’s successful influencer strategy, is a bold move but also comes with risks. The challenge will be aligning the right influencers with the right brands while maintaining brand safety and long-term trust.

Ultimately, the FMCG landscape is entering a new era where pricing strategies, brand focus, and digital marketing prowess will determine success. Retailers and manufacturers must balance aggressive pricing with long-term profitability, ensuring they remain competitive in an increasingly fragmented market.

For FMCG executives, the lessons are clear. Retailers must prepare for a more competitive pricing environment, where margin protection is key. Meanwhile, manufacturers must focus on brand strength and marketing innovation to maintain customer loyalty and market share. The coming months will be crucial in shaping the future strategies of these industry giants.